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Economics
Suppose that the two nations in Problems 32-1 and 32-2 choose to specialize in producing the goods for which they have a comparative advantage. They agree to trade at a rate of exchange of 1 pastry
Residents of the nation of Border Kingdom can forgo production of digital televisions and utilize all available resources to produce 300 bottles of high-quality wine per hour. Alternatively, they can
Based on your answers to Problem 32-4, which nation has a comparative advantage in producing digital TVs? Which nation has a comparative advantage in producing bottles of wine? Problem 32-4 Residents
Suppose that the two nations in Problem 32-4 decide to specialize in producing the good for which they have a comparative advantage and to engage in trade. Will residents of both nations agree to
Consider the above table and answer the questions that follow.a. What is the opportunity cost of producing modems in South Shore? Of producing flash memory drives in South Shore? b. What is the
Refer to your answers to Problem 32-7 when answering the following questions.In Refer to Problem 32-7a. Which one of the following rates of exchange of modems for flash memory drives will be
Critics of the North American Free Trade Agreement (NAFTA) suggest that much of the increase in exports from Mexico to the United States now involves goods that Mexico otherwise would have exported
Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts:What are this nation's balance of trade, current account balance, and capital account balance?
Suppose that under a gold standard, the U.S. dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to gold at a rate of £17.50 per ounce. Explain how the gold standard
Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of $35 per ounce and the pound sterling is pegged to the dollar at a rate of $2 = £1. If the dollar is devalued
Suppose that the People's Bank of China wishes to peg the rate of exchange of its currency, the yuan, in terms of the U.S. dollar. In each of the following situations, should it add to or subtract
Identify whether each of the following items creates a surplus item or a deficit item in the current account of the U.S. balance of payments. a. A Central European company sells products to a U.S.
Explain how the following events would affect the market for the Mexican peso, assuming a floating exchange rate. a. Improvements in Mexican production technology yield superior guitars, and many
Explain how the following events would affect the market for South Africa's currency, the rand, assuming a floating exchange rate. a. A rise in U.S. inflation causes many U.S. residents to seek to
Suppose that the following two events take place in the market for China's currency, the yuan: U.S. parents are more willing than before to buy action figures and other Chinese toy exports, and
On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was $0.010 per yen. On Thursday, it was $0.009. Did the dollar appreciate or depreciate against the yen? By how much,
On Wednesday, the exchange rate between the euro and the U.S. dollar was $1.20 per euro, and the exchange rate between the Canadian dollar and the U.S. dollar was U.S. $1.05 per Canadian dollar.
Suppose that signs of an improvement in the Japanese economy lead international investors to resume lending to the Japanese government and businesses. Policymakers, however, are worried about how
Briefly explain the differences between a flexible exchange rate system and a fixed exchange rate system.
The owners of a small manufacturing concern have hired a manger to run the company with the expectation that he will buy the company after five years. Compensation of the new vice president is a flat
In 2008, the Labour Party in Britain promised that patients would have to wait for no more than four hours to be seen in an emergency room. How is the National Health Service meeting this performance
In 2013, France's labor unions won a case against Sephora to prevent the retailer from staying open late, and forcing its workers to work "antisocial hours." The cosmetics store does about 20% of its
Identify an unconsummated wealth-creating transaction (or a wealth-destroying one) created by some tax, subsidy, price control, or other government policy, and then figure out how to profitably
George's T-Shirt Shop produces 5,000 custom printed T-shirts per month. George's fixed costs are $15,000 per month. The marginal cost per T-shirt is a constant $4. What is his break-even price? What
An end-of-aisle price promotion changes the price elasticity of a good from -2 to -3. If the normal price is $10, what should the promotional price be?
The "A" index is a proxy for the world price of cotton. From January to October of 2010, the price reflected by the "A" index increased about 80%.a. Provide two separate explanations for this price
Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in costs, entry/exit of firms, a change in consumer tastes,
What strategy is your company following (try to classify it into one of the three strategies in the text)? How is your strategy working-how long will it allow you to maintain a competitive advantage?
a. In February 2014, hostilities escalated between Russia and Ukraine over Crimea. Predict the effects of these hostilities on the exchange rate between the U.S dollar and the Russian ruble. b. In
In 2005, Clear Channel (an owner of multiple popular radio stations) spun off concert promoter Live Nation into an independent company. How would this affect prices for concert tickets or rates for
A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto defrost feature. Female shoppers generally value
To test the effectiveness of two Web advertising agencies, you increase your ad purchase with agency A by 50% without changing your purchase through agency B. The referrals to your Web site from
You are offered the following gamble based on coin flips. If the first heads occurs on the first flip, you get $2. If the first heads occurs on the second flip you get $4, and so on so that if the
Describe a decision your company has made when facing uncertainty. Compute the expected costs and benefits of the decision. Offer advice on how to proceed. Compute the profit consequences of the
Identify something you buy or sell that could be bought or sold using an auction. How would you run the auction? Do a benefit-cost analysis of the auction relative to how you currently buy or sell.
Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Why don't police departments increase
Planes frequently push back from the gate on time, but then wait 2 feet away from the gate until it is time to queue up for take-off. This increases fuel consumption and increases the time that
Describe an incentive conflict in your company. What is the source of the conflict, and how is it being controlled? Could you control it in a less costly way? Compute the profit consequences of the
List three reasons why it might be a bad idea to have corporate headquarters set transfer prices.
Australian cosmetics maker, Eternal Beauty Products, pressures online retailers to either sell goods at prices charged by brick and mortar stores or risk being cutoff. If online retailers are paying
Identify a vertical relationship in your company and determine whether it could be managed more profitably by tying, bundling, exclusion, or vertical integration. Clearly identify the source of the
ESPN currently pays the NFL $1.1 billion per year for eight years for the right to exclusively televise Monday Night Football. What is the net present value of this investment if the parent Disney
Consider the Sherwin-Williams Company example discussed in this chapter (see Table 4.1). Suppose one is interested in developing a simple regression model with paint sales (Y) as the dependent
Would cappuccino by the cup or Prada handbags have wider price variation in a free trade area like the European Union? Why?
Library Research Project. It was observed in the chapter that collusion among oligopolists can be facilitated in part by information sharing. As a consequence, the sharing of price information among
The long competition between Subway and Quizno's subshops took price from $6 to $5 for selected Footlongs. Eventually, Quizno's dropped price another dollar to $4 with its Torpedo product. Market
"To an economist, a resource is 'scarce' only if it has a positive price. Resources with zero prices are, by definition, not scarce." Do you agree? Or does the term scarce convey some other meaning?
The following conversation was heard among four economists discussing whether the minimum wage should be increased: Economist A. "Increasing the minimum wage would reduce employment of minority
The Production Possibility Frontier (PPF) shown in Figure 1.1 has a "concave" shape (you can remember that this shape is called "concave" because it resembles part of the entrance to a cave). Explain
Why do honeybees find it in their interest to leave some nectar in each flower they visit? Can you think of any human activities that yield a similar result?
Classical economists struggled with the "Water-Diamond Paradox," which seeks an explanation for why water (which is very useful) has a low price, whereas diamonds (which are not particularly
Marshall's model pictures price and quantity as being determined simultaneously by the interaction of supply and demand. Using this insight, explain the fallacies in the following paragraph:A rise in
"Gasoline sells for $4.00 per gallon this year, and it sold for $3.00 per gallon last year. But consumers bought more gasoline this year than they did last year. This is clear proof that the economic
"A shift outward in the demand curve always results in an increase in total spending (price times quantity) on a good. On the other hand, a shift outward in the supply curve may increase or decrease
Housing advocates often claim that "the demand for affordable housing vastly exceeds the supply." Use a supply-demand diagram to show whether you can make any sense out of this statement. In
A key concept in the development of positive economic theories is the notion of "refutability"-a "theory" is not a "theory" unless there is some evidence that, if true, could prove it wrong. Use this
The notion of utility is an "ordinal" one for which it is assumed that people can rank combinations of goods as to their desirability, but that they cannot assign a unique numerical (cardinal) scale
Suppose an individual consumes three items: steak, lettuce, and tomatoes. If we were interested only in examining this person's steak purchases, we might group lettuce and tomatoes into a single
How might you draw an indifference curve map that illustrates the following ideas? a. Margarine is just as good as the high-priced spread. b. Things go better with Coke. c. Popcorn is addictive - the
Inez reports that an extra banana would increase her utility by two units and an extra pear would increase her utility by six units. What is her MRS of bananas for pears-that is, how many bananas
Oscar consumes two goods, wine and cheese. His weekly income is $500.a. Describe Oscar's budget constraints under the following conditions:i. Wine costs $10 / bottle, cheese costs $5/pound;ii. Wine
While standing in line to buy popcorn at your favorite theater, you hear someone behind you say, "This popcorn isn't worth its price-I'm not buying any." How would you graph this person's situation?
A careful reader of this book will have read footnotes 2 and 5 in this chapter. Explain why these can be summarized by the commonsense idea that a person is maximizing his or her utility only if
Most states require that you purchase automobile insurance when you buy a car. Use an indifference curve diagram to show that this mandate reduces utility for some people. What kinds of people are
As we showed in this chapter, utility maximization requires that a person equate the marginal rate of substitution (MRS) to the ratio of the goods' prices (Px / PY). When asked to explain the
Suppose that an electric company charges consumers $:10 per kilowatt hour for electricity for the first 1,000 kilowatt hours used in a month but $:15 for each extra kilowatt hour after that. Draw the
Monica always buys one unit of food together with three units of housing, no matter what the prices of these two goods. If food and housing start with equal prices, decide whether the following
Table 3.4 reports an estimated price elasticity of demand for electricity of -1:14. Explain what this means with a numerical example. Does this number seem large? Do you think this is a short- or
When there are only two goods, the assumption of a diminishing MRS requires that substitution effects have price and quantity move in opposite directions for any good. Explain why this is so. Do you
George has rather special preferences for streaming TV shows. As his income rises, he will increase his streaming until he reaches a total of seven shows per week. After he is streaming seven shows
Is the following statement true or false? Explain. "Every Giffen good must be inferior, but not every inferior good exhibits the Giffen paradox."
Explain whether the following events would result in a move along an individual's demand curve for popcorn or in a shift of the curve. If the curve would shift, in what direction? a. An increase in
In the construction of the market demand curve shown in Figure 3.12, why is a horizontal line drawn at the prevailing price P*x? What does this assume about the price facing each person? How are
"Gaining extra revenue is easy for any producer-all it has to do is raise the price of its product." Do you agree? How will the success of the firm's decision to raise price depend on the elasticity
Suppose that the market demand curve for pasta is a straight line of the form Q = 300 - 50P, where Q is the quantity of pasta bought in thousands of boxes per week and P is the price per box (in
J. True-blue always spends one-third of his income on American flags. What is the income elasticity of his demand for such flags? What is the price elasticity of his demand for flags?
In this chapter we showed how the "consumer surplus" that people receive from being able to consume a good at its current price is given by the area below the demand curve and above that price. In
What does it mean to say we expect a fair coin to come up heads about half the time? Would you expect the fraction of heads to get closer to exactly 0.5 as more coins are flipped? Explain how this
Why does the assumption of diminishing marginal utility of income imply risk aversion? Can you think of other assumptions that would result in risk-averse behavior (such as the purchase of insurance)
"Risk-averse people should only be averse to big gambles with a lot of money at stake. They should jump on any small gamble that is unfair in their favor." Explain why this statement makes sense. Use
"The purchase of actuarially fair insurance turns an uncertain situation into a situation where you receive the expected value of income with certainty." Explain why this is true. Can you think of
Suppose that historical data showed that returns of Japanese stocks and returns on U.S. stocks tended to move in opposite directions. Would it be better to own only one country's stocks or to hold a
As discussed in Application 4.4: Puts, Calls, and Black-Scholes, a call option provides you with the option to buy a share of, say, Microsoft stock at a specified price of $60. Suppose that this
College students are familiar with the real option of being able to drop a course before the end of the term. The text provided a list of factors affecting the value of any option (value of
Our analysis in this chapter suggests that individuals have a utility-maximizing amount of information. Explain why some degree of ignorance is optimal?
Wen, who has current wealth of $10,000, decides to take advantage of a free trip to Las Vegas to play roulette. His utility function over the wealth he ends up with after the trip Y (which equals his
In game theory, players maximize payoffs. Is this assumption different from the one we used in Chapters 2 and 3?
Choose a setting from student life. Try to model it as a game, with a set number of players, payoffs, and actions. Is it like any of the classic games studied in this chapter?
What is the difference between an action and a strategy?
Why are Nash equilibrium identified by the strategies rather than the payoffs involved?
Which of the following activities might be represented as a zero-sum game? Which are clearly not zero sum? a. Flipping a coin for $1 b. Playing blackjack c. Choosing which candy bar to buy from a
Why is the Prisoners' Dilemma a "dilemma" for the players involved? How might they solve this dilemma through pregame discussions or post-game threats? If you were arrested and the D.A. tried this
The Battle of the Sexes is a coordination game. What coordination games arise in your experience? How do you go about solving coordination problems?
In the sequential games such as the sequential Battle of the Sexes, why does the Nash equilibrium allow for outcomes with non-credible threats? Why does subgame perfect equilibrium rule them out?
Which of these relationships would be better modeled as involving repetitions and which not, or does it depend? For those that are repeated, which are more realistically seen as involving a definite
In the Tragedy of the Commons, we saw how a small change in A's benefit resulted in a shift in A's best response function and a movement along B's best-response function. Can you think of other
Provide a brief description of the production function for each of the following firms. What is the firm's output? What inputs does it use? Can you think of any special features of the way production
Capital and labor are used in fixed proportions to produce an airline flight. It takes two workers (pilots) and one plane to produce a trip. Safety concerns require that every plane has two pilots.a.
In what ways are firms' isoquant maps and individuals' indifference curve maps based on the same idea? What are the most important ways in which these concepts differ?
Roy Dingbat is the manager of a hot dog stand that uses only labor and capital to produce hot dogs. The firm usually produces 1,000 hot dogs a day with five workers and four grills. One day a worker
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